Competition and Profitability in European Banking: Why are British Banks so Profitable?

33 Pages Posted: 10 Dec 2005

See all articles by David T. Llewellyn

David T. Llewellyn

Loughborough University - Department of Economics

Abstract

Substantial differences remain between the profitability of banks in different European countries. This article considers the relationship between competition and profitability in European banking focussing on the experience of the UK where two issues are considered: why British banks have been earning excess returns for more than a decade and why British banks seem to be more profitable than their Continental counterparts. A paradigm is offered to explain this. A distinction is made between shareholder value (SHV) and stakeholder value (STV) banks whose business objectives are often different. Significant differencesexist between European countries in the balance of SHV and STV banks. The UK is almost unique in Europe in having almost exclusively SHV-based banks. Pressures will intensify for all European banks to adopt SHV strategies, which will imply substantial changes in bank strategies and business operations.

JEL Classification: G21, L25

Suggested Citation

Llewellyn, David T., Competition and Profitability in European Banking: Why are British Banks so Profitable?. Economic Notes, Vol. 34, No. 3, pp. 279-311, November 2005. Available at SSRN: https://ssrn.com/abstract=856682 or http://dx.doi.org/10.1111/j.0391-5026.2005.00152.x

David T. Llewellyn (Contact Author)

Loughborough University - Department of Economics ( email )

York House
Loughborough LE11 3TU
Great Britain

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